This paper evaluates the impact of some key factor market reforms on rural-urban inequality and income distribution, using a household-disaggregated, recursive computable general equilibrium (CGE) model of People’s Republic of China. It also explores how these factor market reforms interact with product market reforms currently underway as part of the country’s World Trade Organization (WTO) accession process. The simulation results show that reforms in the rural land rental market and hukou system, as well as increasing off-farm labor mobility, would reduce the urban-rural income ratio dramatically. Furthermore, the combination of WTO accession and factor market reforms improve both efficiency and equality significantly. This paper is part of the ERD Working Paper Series which is a forum for ongoing and recently completed research and policy studies undertaken in the Asian Development Bank or on its behalf.